Jardin v. DATAllegro, Inc.

10–CV–2552–IEG (WVG)
August 12, 2008
Federal Court
California
United States District Court for the Southern District of California

     In Jardin v. DATAllegro, Inc., No. 10-CV-2552-IEG (WVG), 2011 WL 3299395 (S.D. Cal. July 29, 2011), the United States District Court for the Southern District of California considered whether the pre-discovery trade secret identification requirement of California Code of Civil Procedure §2019.210 also applies in California federal court. Section 2019.210 requires that trade secrets be identified with reasonable particularity before discovery commences, in an effort to prevent abuse of discovery and to enable defendants to form complete and well-reasoned defenses.

     Jardin concerns a patent dispute, in which plaintiff Cary Jardin alleged that defendant Stuart Frost stole nonpublic information while employed by Jardin. Frost then formed his own company, defendant DATAllegro, Inc., and allegedly used the misappropriated information to file for a patent. Although Jardin involves patent claims, the case implicates trade secrets law because Jardin’s patent claims were based upon the misappropriation of nonpublic information. Therefore, DATAllegro argued that discovery could not be conducted until Jardin identified the allegedly misappropriated information with reasonable particularity, pursuant to §2019.210.

     Magistrate Judge Gallo ultimately declined to apply §2019.210 in federal court. However, Judge Gallo was influenced by the policy concerns underlying §2019.210 and used his discretion under the Federal Rules of Civil Procedure to, nevertheless, order Jardin to identify the allegedly misappropriated information prior to discovery. Jardin objected to this order, but it was upheld by District Judge Irma Gonzalez on July 29, 2011. Judge Gonzalez held that Judge Gallo had committed no error in requiring pre-discovery identification and that he had broad discretion under the Federal Rules to consider policy concerns when granting his order.

Cary A. Jardin
DATAllegro, Inc., Stuart Frost
Other state statute

Case Report

Background:

     Plaintiff Cary Jardin (“Jardin”) is the founder of XPrime, Inc., a database technology company. Jardin developed a technology for XPrime that facilitates scalable high-performance computing and XPrime assigned to Jardin all of the rights in this intellectual property. In March 2003, defendant Stuart Frost (“Frost”) was hired by XPrime as its CEO. Frost’s employment lasted for merely one month yet, for unknown reasons, he retained access to XPrime’s confidential information until August 2003, when his parting from XPrime apparently reached a more formal conclusion. In June 2003, Frost founded his own company, DATAllegro, Inc (“DATAllegro”), which is also a defendant in the instant case. Soon afterward, Frost filed a patent application for a computing technology, identifying himself as the sole inventor; the patent was eventually issued in 2010 and assigned to DATAllegro (U.S. Patent Number 7,818,349). In 2008, Microsoft Corporation acquired DATAllegro, and Frost and other DATAllegro investors received compensation for the acquisition, which Jardin believed was based in part on the value of the patent. Jardin then filed suit against DATAllegro for patent infringement (the “2008 case”). The instant case is an action to correct inventorship, inter alia, in which Jardin alleges that DATAllegro’s patent is based on two patent applications to which Frost had access during his relationship with XPrime (the “2010 case”).

Procedural History:

     In the 2008 case, the court issued a protective order, which limited the use of any protected information produced during the case to that case alone. Due to the factual overlap in the 2008 case and the 2010 case, the parties sought to revise the 2008 protective order to allow information produced during the 2008 case to be used in the 2010 case, thereby eliminating needless duplication of discovery. However, DATAllegro asked the Court to specifically exclude certain confidential information that Jardin’s attorneys had learned during discovery in the 2008 case. DATAllegro believed that viewing this knowledge prior to commencing discovery in the 2010 case would unfairly influence Jardin’s claims and discovery requests, with the 2008 case acting as a vehicle for premature discovery in the 2010 case. DATAllegro asked the Court to temporarily wall off the attorneys who had represented Jardin in the 2008 case until Jardin identified with reasonable particularity the information that was allegedly misappropriated by Frost in his patent application, pursuant to §2019.210, California’s pre-discovery trade secret identification requirement. DATAllegro argued that Jardin’s patent claims in the instant case were merely thinly-veiled trade secret misappropriation claims and, therefore, §2019.210 should govern discovery.

Magistrate Judge Gallo’s Order:

     On June 27, 2011, Magistrate Judge Gallo held a telephonic discovery hearing, after which he found DATAllegro’s concerns to be valid. Although he declined to apply §2019.210 in federal court, he noted that the policy concerns underlying §2019.210 were still relevant to the case. As first stated in Computer Economics, Inc. v. Gartner Group, Inc., §2019.210 serves four purposes:

“First, it promotes well-investigated claims and dissuades the filing of meritless trade secret complaints. Second, it prevents plaintiffs from using the discovery process as a means to obtain the defendant's trade secrets.... Third, the rule assists the court in framing the appropriate scope of discovery and in determining whether plaintiff's discovery requests fall within that scope.... Fourth, it enables defendants to form complete and well-reasoned defenses, ensuring that they need not wait until the eve of trial to effectively defend against charges of trade secret misappropriation.”

50 F. Supp. 2d 980, 985 (S.D. Cal. 1999). After considering these policy concerns as well as DATAllegro’s specific concerns, Judge Gallo issued a Minute Order (“the Order”) which required Jardin, prior to any other discovery, to identify the allegedly misappropriated information in response to a specific interrogatory from DATAllegro that sought such information. Judge Gallo also ordered preclusion of any attorneys who worked on Jardin’s 2008 case from drafting the response to the interrogatory and he directed the parties to revise the 2008 protective order accordingly.

     In turn, Jardin objected to the Order and requested an independent review by the District Court to correct certain alleged errors. Jardin argued that §2019.210 was not applicable, stating that an action brought pursuant to a federal question (i.e., the patent claims) should be governed by Rule 26, which does not require a plaintiff to identify its trade secrets before discovery commences. Jardin further argued that to the extent that any trade secrets existed with respect to the 2008 case, they were lost once the DATAllegro patent was published. Thus, he argued that DATAllegro’s demand for a statement delineating the intellectual property allegedly misappropriated by Frost could be satisfied simply by reviewing the public records on file with the USPTO. Jardin also argued that he would be significantly prejudiced if the Court disqualified any of his attorneys from participating in any part of the 2010 case.

District Judge Gonzalez’s Opinion:

     On July 29, 2011, District Judge Irma Gonzalez overruled Jardin’s objections and upheld the Order. Judge Gonzalez held that nothing in the Order was clearly erroneous; the procedures ordered by Judge Gallo were consistent with his responsibilities and discretion under Rule 26. Judge Gonzalez also stated that the Order did not constitute an application of §2019.210 in federal court. Judge Gallo had merely “considered the parties’ concerns, which happened to coincide with some of the policy concerns underlying §2019.210.” Judge Gonzalez noted that the Federal Rules “provide magistrate judges with broad discretion to manage discovery based on the particular facts of the cases before them.”

Significance of Jardin:

a) Jardin may indicate a possible trend towards requiring pre-discovery identification of trade secrets in California federal courts, even when §2019.210 is not expressly applied

     This is not the first time that the California district courts have considered the applicability of §2019.210; however, they have not reached the same results. In 1999, the Southern District, after conducting an extensive Erie analysis, held that §2019.210 was part of the substantive trade secret law and applicable in federal court. Computer Economics, Inc. v. Gartner Group, Inc., 50 F. Supp. 2d 980 (S.D. Cal. 1999). A 2004 case from the Northern District also held that §2019.210 was applicable. Neothermia Corp. v. Rubicor Med., Inc., 345 F. Supp. 2d 1042 (N.D. Cal. 2004). However, more recent cases concluded that §2910.210 is a rule of procedure that conflicts with the Federal Rules and thus is not applicable in federal court. Funcat Leisure Craft, Inc. v. Johnson Outdoors, Inc., CIV. NO. S-06-0533 GEB GGH, 2007 WL 273949 (E.D. Cal. Jan. 29, 2007); Hilderman v. Enea TekSci, Inc., No. 05cv1049 BTM(AJB), 2010 WL 143440 (S.D. Cal. Jan. 8, 2010). Nevertheless, in Hilderman v. Enea TekSci, Inc., on a motion in limine, the Court warned that the plaintiff may still be barred from presenting trade secret claims at trial for which the defendants had not received “fair notice.” Furthermore, the Northern District has required a plaintiff to disclose allegedly misappropriated trade secrets even when declining to rule on the applicability of §2019.210 in federal court, citing policy concerns and imposing the requirement "as a matter of case management." Applied Materials, Inc. v. Advanced Micro-Fabrication Equip. (Shanghai) Co., Ltd., C 07-5248 JW PVT, 2008 WL 183520 (N.D. Cal. Jan. 18, 2008). This willingness to take policy considerations into account is also evident in Jardin. The Jardin decision may be part of a trend, within the California federal courts, of requiring plaintiffs to identify trade secrets with reasonable particularity before commencing discovery, even if the courts do not expressly apply §2019.210. The Ninth Circuit has yet to make a determination concerning the applicability of §2910.210 in federal court.

b) How Jardin might affect litigants

     1) Trade secret plaintiffs in California federal courts should anticipate pre-discovery identification of trade secrets even as part of their Rule 26 disclosure. Knowing that a California federal court might require this disclosure may influence choice of forum for trade secrets plaintiffs.

     2) Patent litigants should be aware of the Jardin decision’s imposition of trade secrets discovery requirements to a patent plaintiff. The Court appears to accept DATAllegro’s argument that Jardin had asserted a thinly-veiled trade secrets claim. This is likely due to the allegation of theft of nonpublic information in the context of an employment relationship. Patent plaintiffs in California who are presented with a similar set of facts should know that pre-discovery disclosure is at least a possibility.

     3) Litigants should keep in mind that other jurisdictions require or have required similar pre-discovery identification of trade secrets. The state of Delaware imposes an almost identical requirement on trade secret plaintiffs as does California. However, Delaware’s requirement is imposed through well-established common law rather than by statute. Additionally, district courts in Florida, Illinois, Minnesota, and Virginia have, citing to California or Delaware law, also imposed an early disclosure requirement in several cases. Thus, even plaintiffs in these jurisdictions should anticipate potential pre-discovery disclosure of trade secrets. Additionally, perhaps California and Delaware law will become increasingly influential across jurisdictions.

c) Jardin also provides guidance concerning the nature of “reasonable particularity”

     After Judge Gonzalez upheld Judge Gallo’s order, Jardin was required to furnish DATAllegro with its trade secret identification statement in response to a special interrogatory to be prepared by DATAllegro. The court left the format of the interrogatory and response to the parties’ discretion. On January 11, 2012, after several insufficient responses were submitted by Jardin – each of which were determined during discovery hearings to be vastly overbroad – Judge Gallo ordered Jardin to rewrite his response to include certain information. If the allegedly misappropriated information was in the form of source code, Jardin was required to identify the specific lines of code, either by reproducing the code verbatim in his response or by referencing specific Bates-numbered documents (but only to specific pages and lines of code within those pages). If the information was contained in a document, Jardin was required to either reproduce the information directly in his response or cite to specific, individual Bates-numbered documents. Furthermore, if a specific page contained lines of text (as opposed to charts or photographs), Jardin was required to designate which specific lines of text contained the allegedly misappropriated information and/or data. If Jardin claimed all information within a specific identified page was misappropriated, then he was required to indicate such. Finally, if the information was not contained in document form at all, Jardin was required to reproduce the information verbatim in his response.

     Additionally, Judge Gallo ordered that the information be presented in a chart formatted and organized in a specific manner. Judge Gallo also noted that due to the complexity of the technology at the heart of the dispute, a higher level of specificity was necessary in order to identify what was misappropriated. This January 11, 2012 order can serve as guidance for plaintiffs regarding what they might be expected to allege when making trade secrets claims, as well as for defendants when crafting interrogatories.